THE PHILODRILL CORPORATION

Transcription

1 Annuall Reportt 2017

2 Table of Contents 03 Financial Highlights 04 Letter to Stockholders 08 Petroleum Projects 18 Philodrill s Petroleum Interests 19 Statement of Management s Responsibilty for Financial Statements 20 Independent Auditor s Report 24 Consolidated Statements of Financial Position 25 Consolidated Statements of Income 26 Consolidated Statements of Comprehensive Income 27 Consolidated Statements of Changes in Equity 28 Consolidated Statements of Cash Flows 30 Board of Directors, Officers and Corporate Directory 31 Notes to Consolidated Financial Statements (Contained in the attached CD) OUR COVER The flare boom of our oil production platform towering against the vibrant sky embodies our 2017 retrospective brimming with high hopes for the years to come. 03 Financial Highlights In Thousand Pesos CONSOLIDATED Revenues from Petroleum Operations 388, , ,637 Investments Income Interest and Other Income Net Income (Loss) 15,781 18,374 (6,367) 14,182 54,467 29,119 24,227 51, ,710 Total Assets 3,641,120 3,630,093 3,615,445 Total Liabilities Net Worth Authorized Capital Issued and Subscribed Capital 75,781 3,565,340 2,000,000 1,918,688 64,838 3,565,255 2,000,000 1,918,688 73,988 3,541,456 2,000,000 1,918,688 AS OF END OF YEAR FOR THE YEAR

3 Letter to Stockholders 04 FINANCIAL MATTERS Our company s revenues slightly decreased from million in 2016 to million in Petroleum revenues, which comprised 91% of total revenues, increased by 8% to million. The higher level of crude prices which prevailed in 2017 offset the negative impact of the depletion-driven decline in the crude production from the Galoc oilfield. Equitized earnings together with interest and other income totaling 35.1 million was likewise higher. However, the foreign exchange gain resulting from the restatement of our company s U.S. dollar denominated assets dropped substantially from 35.5 million in 2016 to 2.6 million in 2017 due to the much smaller rate of depreciation of the Philippine peso as against the U. S. currency in Crude prices staged a mild recovery in 2017 from precariously low levels experienced in This favorable development came about mainly due to the concerted effort of major oil producers to curtail their crude output in order to contain the supply glut in the world market. Four crude shipments totaling 1.4 million barrels were exported from the Galoc field in 2017 at average price of US$54.97 per barrel, around 27% higher than the 2016 average of US$43.25 per barrel. In terms of quantity, the 2017 lifting volume aggregate was 18% lower than that of the five shipments completed in The decline was due to the normal depletion of the Galoc production wells which had been mitigated by the continuing well optimization program implemented by the operator. ALFREDO C. RAMOS Chairman and President The level of costs and expenses increased from million in 2016 to million in The increase is attributable mainly to our company s share in the costs incurred in the plug and abandonment (P&A) operation involving the old abandoned production wells in Tara and Libro, both under Service Contract (SC) 14, as well as the underwater inspection of the Nido and Matinloc platforms in order to assess their strength and integrity. The P&A of abandoned wells form part of the responsibility of the SC 14 joint venture as service contractors with the Philippine government. On the other hand the periodic inspection and maintenance of production facilities are important to ensure the safety of our personnel and the continuity of our operations. The higher level of expenses incurred during the year without a corresponding increase in revenues resulted to a net loss of 6.4 million in 2017 from a net income of 29.1 million in Due to the decline in profitability over the last two years, our company was constrained to suspend dividend payments in Our company s total assets increased slightly from 3.63 billion as of year-end 2016 to 3.64 billion as of end Total current assets posted a decline of 44.5 million from 1.11 billion mainly due to a drawdown in our cash reserves after having participated in the drilling of the Galoc-7 well in the early part of Non-current assets totaling 2.58 billion consisting mainly of petroleumrelated assets and deferred costs as well as long-term equity investments had a combined net increase of 55.6 million after taking into account the effect of the booking of our company s share in the Galoc-7 well cost and other exploration projects, depletion expense, equitized income and increase in the valuation reserve. Our company s debt-free status was preserved with only 75.8 million in liabilities as of year-end 2017, the bulk of which consisted of unclaimed dividends from previous years. Stockholders equity at 3.57 million was unchanged from last year. PETROLEUM OPERATIONS The Galoc field under Service Contract (SC) 14 achieved a milestone in January 2017 after having produced an aggregate crude production of 20 million barrels starting from July 2009, making Galoc the biggest producing oilfield in the country thus far. In terms of annual production, the crude output of 1.44 million barrels was 408,000 barrels lower than the previous year s level. Operator Galoc Production Company (GPC) continued to institute measures to try to mitigate the depletion rate of the producing wells. The floating production, storage and offloading (FPSO) facility achieved close to 100% process uptime in Four crude shipments were exported from the Galoc field in 2017 through the joint venture s marketing agent, Vitol Asia Pte. Ltd. As reported earlier, these shipments fetched an average price of US$54.97 per barrel, around 27% higher than the average of US$43.25 per barrel in The price of Galoc crude continued to be benchmarked against Dubai crude plus a negotiated premium. With the objective of evaluating the hydrocarbon potential of the Mid-Galoc area and possibly pave the way for a possible Galoc Phase 3 development, GPC presented to the joint venture in October 2016 a proposal to drill the Galoc-7 (G7) appraisal and an optional sidetrack well (G7-ST). This project was approved by both the joint venture and the Department of Energy (DOE) as a committed work program for The G7 and G7-ST wells were drilled in March and April 2017 using the drillship Deepsea Metro I. The G7 well was drilled through the Galoc Clastic Unit (GCU) reservoir objective to a final depth of 2,373 meters, while the G7-ST well reached a total measured depth of 2,569 meters. The two wells intersected around 12 meters of net reservoir sand, which fell short of the prognosed thickness. The pressure measurements indicated that the location of the G7 wells is being drained by the existing production wells. The G7 drilling was completed within the programmed timeline and budget. After a comprehensive review and evaluation of the drilling results, the Galoc joint venture decided not to proceed with the Phase 3 development project until such time that the crude oil prices will have stabilized at more economic levels. 05 With the FPSO lease contract with Rubicon Oil International (ROI) set to expire on June 30, 2018, GPC tendered the required six-month notice on December 29, 2017 for the extension of the term of the contract. At this writing, GPC and ROI are negotiating the terms and conditions of the new contract, with the objective of prolonging the economic life of the Galoc field. One possible scenario which is now reportedly under consideration involves the direct payment to ROI of a portion of the FPSO facility cost to cover its direct operating cost. ROI will then enter into an income-sharing arrangement with the Galoc joint venture after deducting from revenues all production, operating, marketing and decommissioning costs. The exact sharing arrangement and its effective date are expected to be announced before the end of the current contract. The Nido, Matinloc and North Matinloc fields under Blocks A, B and B1 of SC 14 which our company continues to operate produced a combined crude output of close to 126,000 barrels in 2017, down by about 8% from Twelve crude shipments were delivered to Pilipinas Shell Petroleum Corporation at an average price of US$52.92 per barrel which was around 26% better than the 2016 average. As part of its responsibility as a service contractor, our company will undertake plug and abandonment (P&A) operations of the abandoned Tara and Libro production wells under SC 14. At this writing, the P&A work is underway and is expected to be completed towards the middle of June We had previously successfully completed the P&A of the Pandan-1 well in We are now preparing the groundwork for the eventual P&A of the Nido, Matinloc and North Matinloc wells and decomissioning of the platforms in the future. After having successfully completed the 2016 quantitative interpretation (QI) study work program for SC 6 Block A (Octon), our company submitted to and obtained approval from the DOE to proceed with the 2017 program involving the Pre-Stack Depth Migration (PSDM) reprocessing of more than 500 square kilometers of seismic data and the subsequent re-run of the QI work with a broader scope to cover all interesting prospects in the northern part of the Octon block. The result of the PSDM reprocessing work was received in October The QI work was initially expected to be completed by December 2017 but has been carried over to The interpretation work is now focused on identifying possible areas where the Galoc sand reservoir could be better developed. The work program for 2018 also includes a risk and resource ranking of potential prospects and the development of preliminary well design and cost estimates. In SC 6 Block B (Bonita), Trans-Asia Petroleum Corporation (TAPET) withdrew from the joint venture in February 2017 and relinquished its % participating interest # "! $ +, * ' ) & ' ( %

4 06 in the block. TAPET s withdrawal was accepted by the remaining members of the consortium and its relinquished equity interest was distributed on a pro-rata basis among the remaining participants, with our company gaining an additional 8.182% interest in the block. The equity reassignment is presently awaiting approval by the DOE. For the most part of 2017 the efforts of our company as operator of this block together with the other remaining members of the joint venture was focused on providing the DOE with the documentary requirements in connection with the consortium s request made in August 2016 to amend the coverage of the SC 6B contract area to include the adjacent dormant Cadlao field. The inclusion of Cadlao field was deemed necessary to enhance the prospectivity of the Bonita block given the marginal outlook resulting from the satellite gravity study and 3D seismic data reprocessing undertaken in 2014 and We are pleased to report that the DOE formally approved the consortium s request in March The required amendment documents are being finalized at this writing after which the joint venture will proceed with the implementation of the farm-in agreement entered into with a Europeanbased company in September Under the agreement the farminee will, among others, fund the drilling and redevelopment of the Cadlao field at no cost to the consortium in exchange for a 70% participating interest in the block. The equity re-assignment will be subject to DOE approval. In SC 14 Block C-2 (West Linapacan), the joint venture and the DOE approved the 2017 work program which basically involved the re-mapping of the West Linapacan A Field using the PSDM seismic data purchased from DownUnder Geosolutions (DUG) with the objective of obtaining a better understanding the resource potential of the area. In June 2017, the joint venture approved a supplemental work program for an independent technical study of the A Field as part of the groundwork for a possible re-development of West Linapacan. The technical review was conducted by Australian-based independent consultancy firm RISC Advisory Pty. Ltd. (RISC) and was aimed towards providing an insight into possible recoverable reserves and production scenarios for West Linapacan should the field be re-developed. Completed in January 2018, the result of the study indicated significantly lower oil reserves than originally estimated by our technical staff and other previous consultants. We are now studying other options through which the joint venture can move forward and validate the remaining resource potential of this field short of undertaking a fullblown re-development program. One possibility is to secure DOE approval for the conduct of an extended well test (EWT) through a re-entry of one of the existing wells. In this regard we have initiated discussions with drilling engineers for the conduct of such a study. Meanwhile we continue with our seismic interpretation which is now focused on the West Linapacan B discovery. Regarding SC 53 (Onshore Mindoro), operator Mindoro- Palawan Oil & Gas, Inc. (MPOGI) failed to implement the DOE-approved work program for 2017 which includes the drilling of the Progreso-2 well in December MPOGI cited the lack of manpower and technical expertise as the main reason for its inability to comply with the joint venture s commitment under the service contract. MPOGI has offered to divest 70% of its participating interest and relinquish operatorship of this block in exchange for reimbursement of costs amounting to US$500,000 and an option on future gas production from the field. Our company made a counter-offer which MPOGI has unfortunately declined. We are presently trying to move this project forward by looking for other parties which might be interested to acquire all or a portion of MPOGI s equity in the service contract. In SC 74 (Linapacan), operator PXP Energy Corporation (PXP) implemented the approved 2017 work program by undertaking the interpretation of the 1,600 line kilometers of broadband seismic data acquired in However the complex geology of the block has so far precluded the identification of suitable prospects. The 2018 commitment for this block includes, among others, the interpretation of part of the PSDM 3D seismic data acquired from DUG by the West Linapacan consortium as well as the re-processing of the 2016 broadband seismic data set. Our company is regularly monitoring the status of the proposed Bangsamoro Basic Law in Congress which will guide our future course of action with regard to the Sulu Sea block formerly under SC 41. We are now in the process of identifying possible future partners when we start to prepare a bid for this block. We likewise continue to look forward to the eventual amendment of Executive Order No. 556 which would clear the way for a possible equity swap with PNOC EC involving SC 57 and 58 which cover the former SWAN block and one of our company s existing exploration projects. CORPORATE SOCIAL RESPONSIBILITY Our company continues to coordinate closely with our industry partners in funding infrastructure and socio-economic programs in select municipalities in northern Palawan. We likewise continued to extend financial assistance in support of an archaeological project also in the same area of Palawan in order to promote heritage consciousness amongst the people in the community. Corporate donations have also been made to certain organizations in support of programs which aim to promote better awareness in the field of education and geosciences. Our company is pleased to have been given the opportunity to participate in these endeavors. SUMMARY AND OUTLOOK Our company s revenues in 2018 are expected to benefit from the continuing improvement in crude prices and the depreciation in peso-dollar exchange rate. At this writing, Dubai crude (to which Galoc crude is benchmarked) was trading at more than US$76.00 per barrel with the exchange rate at above PHP52.00 to US$1.00. The current price is already 50% higher than last year s level while the exchange rate has depreciated by almost 5%. However, there are two factors which are expected to have a negative impact on our company s revenues this year, first of which is the continuing depletion of crude production from the Galoc oilfield which is expected to drop by around 20% in The second item is the ongoing P&A program involving the shut-in Tara and Libro wells which is expected to result in the booking of a sizable expense item this year. With regard to Galoc, we hope that the renegotiation of the FPSO contract which is now underway will result in a meaningful reduction in the level of operating expenses that will improve the profitability of this project. The DOE s approval of our request to append the Cadlao field to SC 6B (Bonita) is a very welcome development which is expected to have a strong favorable impact on our company s revenues over the medium term. We hope that the drilling and redevelopment of this field will proceed smoothly after all the other required documents and approvals have been secured. For the longer term scenario, we look forward to our other projects such as Octon, Onshore Mindoro and Linapacan. The work programs involving these projects should move at a faster pace to bring them closer to development stage as soon as possible. In closing, we wish to express once more our deep gratitude to our Lord, for His guidance and providence, and to our shareholders, directors, officers and employees for their continued support, guidance and dedication. Alfredo C. Ramos Chairman of the Board and Chief Executive Officer/President May 22,

5 08 Eastern Navigation s intervention vessel, ENA Habitat, has been contracted for the 2018 P&A operation of the Libro-1 and Tara South-1 wells in SC 14B in NW Palawan. MV Balanghay during crude oil off-take from the Nido AW Platform. A total of 12 shipments of crude from the Nido, Matinloc and North Matinloc were completed in Meanwhile, a Task Force had been created to prepare the SC 14 P&A and Decommissioning Plan for the Nido, Matinloc and North Matinloc wells and facilities. A Master Plan was prepared and submitted in November 2017 by the Task Force to the different SC 14 consortia for consideration. The next task is for a third party to review the prepared protocol and provide general costing for the eventual P&A and decommissioning activities in these fields. manned platform again since the Nido B wells supply most of the production volume from the Nido field. Inspection of subsea pipelines and other facilities are also programmed or are being implemented. The Nido BW well platform is also currently being refurbished. The plan is to make this a working and Service Contract 14 has the unique distinction of being the first contract to implement permanent plug and abandonment (P&A) of offshore production wells and will probably be the first to decommission fixed offshore installations in the country. The P&A of the Pandan-1 well in the Matinloc Block was successfully carried out in 2014 while similar attempts on the Tara and Libro wells in the same year failed. The SC14 B-1 consortium will resume the program in 2018, starting with the ongoing refurbishment works on the Libro platform as part of the preparations for the P&A of these wells. Plug & Abandonment and Decommissioning Activities The consortium completed a total of twelve (12) crude shipments from the three fields in 2017, all with Pilipinas Shell Petroleum Corporation with whom Philodrill is presently negotiating for the renewal of the Crude Oil Purchase Agreement which expired in February As in the previous years, service for crude shipment was provided by Global Gas & Oil Carriers, Inc. with which the Contract for Carriage of Crude Oil with Philodrill also expired in February 2017 and is likewise being negotiated for renewal. The combined production from the three producing fields in 2017 totalled 125,756 barrels which is about 7% less than the fields combined output of 135,513 barrels in The decrease in production is mainly attributed to normal depletion of field reserves and the shut-in of the remaining North Matinloc well in June due to very low flowing pressure. Overall, produced volume fell short of the 130,000 barrels forecast for Production Operations SERVICE CONTRACT NO. 14 Nido, Matinloc and North Matinloc Petroleum Projects 09

6 GPC carried out their 2-well drilling campaign in latemarch to early May using the drillship Deepsea Metro I owned by Golden Close Maritime Co., Ltd. The first well, Galoc-7, was spudded on March 31, 2017 and drilled In 2016, the Galoc Consortium decided to drill the Galoc-7 appraisal and sidetrack wells to test the presence (or absence) and quality of the Galoc Clastic Unit reservoir in the Mid-Galoc area and determine the type of any reservoired fluids therein. This program was presented to and accepted by the DOE as the JV s firm commitment for With the approval, GPC immediately prepared for the drilling campaign, and by end-2016, all the contracts for the drilling rig, vessels, equipment and services were already in place. Galoc Mid Area Exploration Production optimisation strategy is continuously being undertaken by GPC. Increased flow rates from the production wells are achieved by controlling the well openings (choke sizes) without significantly increasing the gas-to-oil ratio. The strategy resulted to being able to effectively manage the field s natural production decline. Operator Galoc Production Company (GPC) and its marketing agent Vitol Asia Pte Ltd. completed four (4) crude oil shipments in 2017 involving 1.41 MM barrels. Buyers were Thai Oil Public Company for the January 2017 shipment while SK Energy Pte Ltd for the other 3 offtakes. The Galoc Field s full year production for 2017 totalled 1.46 MM barrels which was about 22% lower than the total output 1.68 MM barrels in The decrease in production is largely attributed to the normal depletion of the field s reserves even as the FPSO Rubicon Intrepid registered a very high 99.97% process uptime during the year. The Galoc Field attained the 20 MM barrels milestone in January 2017, the first Philippine oilfield with the most produced oil. Operations Review SERVICE CONTRACT NO. 14 C-1 Galoc 10 The operator is looking to manage the field economically possibly until mid-2023 depending on the crude oil prices and the success of the cost reduction measures that GPC is currently implementing or will pursue. GPC will continue implementing production optimization to extend the field life. Towards the end of 2017, the Galoc operations were completely centralized in Manila as part of the cost reduction efforts. Also, the Galoc Joint Venture partners mandated GPC to negotiate for a net revenue sharing arrangement with the FPSO operator ROI and if possible, to renegotiate contracts for other support services. All these measures aim to counter the negatives effects of the protracted downturn in the crude oil prices and reduced field production volume. Projected production volume from the Galoc Field for 2018 is about 1.1 MM barrels. GPC has calendared 4 shipments of 330,000 barrels per cargo, with volumes based on the 2017 Gaffney, Cline & Associates report adjusted to take into consideration operational constraints, with 98% process uptime. Outlook After an extensive review of the well results and potential tie-back scenarios, the JV in consideration of the prevailing low crude prices decided to temporarily suspend all activities related to a possible Phase III development and concentrate its efforts in optimizing oil production at the Galoc Field from the current four production wells in order to sustain profitability and prolong the field s economic life. though the reservoir objective which was found to contain hydrocarbons. The well reached a final depth of 2,373 meters measured depth (MD). GPC followed up with Galoc-7 ST, a sidetrack from Galoc-7, on April 19, The well likewise drilled through the prognosed hydrocarboncharged GCU before reaching a final depth of 2,569 meters MD. The two wells encountered 7 to 12 meters of net sand, which is below the prognosed thickness. Galoc Field produced 1.46 MMBO in 2017 with the FPSO Rubicon Intrepid registering a very high process uptime. Four (4) crude oil shipments with a total volume of 1.41 MMBO were completed in the year. 11

7 12 SERVICE CONTRACT NO. 14 C-2 West Linapacan The DOE approved in January 2017 the submitted work program and budget for the West Linapacan Block for 2017 which focused on the re-mapping of the West Linapacan A Field using the 2014 pre-stack depth migration (PSDM) seismic data. The work aimed to improve the resource estimates and serve as basis for amending previous well design and re-development concepts for the field. Previously un-interpreted PSDM seismic data volume procured from DownUnder Geosolutions (DUG) in May was used for the seismic interpretation works. Alongside the seismic interpretation works, Philodrill reviewed several strategies to re-develop the West Linapacan A field using the floating and subsea facilities of the Galoc Field. The concept identified was to co-produce the West Linapacan oil with the Galoc oil via a 27 km sub-sea pipeline into the FPSO facility of the Galoc Field. This concept, as envisaged, will not only hasten the re-development efforts of the field but will also drastically reduce the operating costs for the planned re-development of West Linapacan A and existing operations at the Galoc field. To progress the validation of the re-development concept, in a meeting in late June, the Joint Venture approved Philodrill s proposed supplemental work program which entails a technical review of the West Linapacan A field. The work was carried out by the Perth-based RISC Advisory Pty Ltd, an independent consultancy firm. The study aimed to provide reservoir scenarios/models documenting recoverable reserves and production forecasts which will serve as basis for field development plans. The technical review commenced in August after Philodrill was granted the DOE s approval of the supplemental work program. The Technical Review was completed in January 2018 with results on resource estimates being significantly lower than previous studies. Key results of the study are as follows: Estimated history matched original oil in place (OOIP) volumes ranged between MMstb with a best case of 72 MMstb. In contrast, NSAI (2011) had between MMstb while RMA (2014) estimated an OOIP of 132 MMstb in the Linapacan Limestone. Reservoir pressure is declining and is reflected by the overall decline in well productivity; Forward modelling used an initialized pressure of 1523 psi which depleted reservoir pressure from the initial 2610 psi. Based on history matched models, the forward simulation indicates that a crestal well can only recover 1 MMstb with a peak rate of 5,600 bopd while a redrill of the WL A-1 in the main block of the field can only recover 0.3 MMstb at 5,000 bopd. In the light of the lower than expected results on reserves of the technical review, Philodrill, under the proposed 2018 Work Program and Budget, will continue to conduct other technical studies to identify and assess remaining, viable options to re-develop the West Linapacan Field. The efforts will also include reviewing cost-effective options for the P&A of the old West Linapacan wells. 13 The reservoir modeling work on the West Linapacan A Field resulted in history matched Oil-Originally-In-Place (OOIP) volumes ranging from MMstb with a best case of 72 MMstb. Identified decline in reservoir pressure however, impacts on oil recovery forecast for a redevelopment plan. SERVICE CONTRACT NO. 6A Octon In January 2017, operator Philodrill formally submitted to the DOE the proposed 2017 Work Program and Budget for the Octon Block which the DOE approved in February With the DOE approval, Philodrill commenced the PSDM re-processing of the 520 sq km seismic data volume on the northern block of the SC with DUG. The objective of the reprocessing work was to further uplift the quality of data from the previous pre-stack time migration (PSTM) work as input for the succeeding rerun of the Quantitative Interpretation (QI) work. The rerun of the QI study using the PSDM data is programmed to further investigate all the identified structures and horizons of interests in the northern portion of the block. The seismic broadband PSDM reprocessing by DUG was carried out in April through September with the results and deliverables received by Philodrill in early October. These have since been loaded into the DUG mapping system. The re-run of the QI immediately commenced in September when the reprocessed PSDM data volume became available. Due to the complexity of geology in the area, the target completion of the QI work by end-december 2017 was delayed and pushed back to the following year. Upon request by the operator, the DOE extended the submission of the 2018 WP&B to January 31, This allowed the joint venture to agree on and adopt the forward activities for the block which include remapping of the previously identified prospects using the PSDM seismic data and integrating the results of the QI work. The proposed G&G work will be complemented by risk and resource analysis on mapped prospects as well as preliminary well/drilling design and cost study. Results from these activities will serve as basis to conduct scoping project activities to assess viability of pursuing drilling and development of these prospects.

8 During the first semester, Philodrill received an offer made by a potential European-based Farminee. The Farminee offer is premised on the DOE approving the requested inclusion of the Cadlao Field and its historical cost into SC 6B. A farm-in agreement was prepared and signed In February 2017, Trans-Asia Petroleum Corporation (TAPET) served notice of relinquishment of its interest in SC 6B in favour of the other members of the Bonita consortium. Immediately, the consortium met in early March to discuss the TAPET issue and the strategy that the Bonita JV would like to take in consideration of the DOE s non-response to the JV s request to append Cadlao Field into SC 6B. To address TAPET s relinquishment, Philodrill circulated a draft addendum to the current SC 6B Joint Operating Agreement (JOA), prescribing a section that will guide the JV on withdrawal by any party from the Agreement and the Service Contract. The proposed addendum to the JOA was eventually put aside when the partners deemed it sufficient to accept and execute TAPET s Notice of Relinquishment. This resulted to Philodrill gaining additional 8.182% interest to its majority interest of 50% on the block. SERVICE CONTRACT NO. 6B Bonita On March 14, 2018, the DOE formally approved the Joint Venture request, subject to the execution of an Amendment to Service Contract 6B. As of time of writing, Philodrill and the Energy Resource Development Bureau of the DOE are finalizing the amendment document which basically defines the geographic coordinates of SC 6B with the Cadlao Block appended to it. In a letter to Philodrill in June 2017, the DOE advised on the legal basis and requirements for the amendment of active, operating contracts such as SC 6B and how the Cadlao field may be appended to it. In support of the request for the inclusion of Cadlao to SC 6B, an indicative work program, as proposed by Farminee under the FIA, was submitted to the DOE. The indicative work program is geared towards reviving oil production from the Cadlao field which included drilling of well(s), facilities construction and commissioning, achieving First Oil before end-2019 and the possible development of the East Cadlao prospect in SC 6B. by the Farminee and the Joint Venture partners in September PSDM seismic reprocessing and Quantitative Interpretation works were undertaken using the 2013 seismic volume over the northern block of the SC. These were programmed to improve the subsurface imaging of identified structures and horizons of interest in the area. 14 In early February, the DOE approved the revised 2017 work program and budget which was submitted in December 2017 by block operator Mindoro-Palawan Oil & Gas, Inc (MPOGI). The main revision involved the re-scheduling of the Progreso-2 drilling from the first quarter of 2017 to December MPOGI sought to delay the start of drilling due to the DOE s late approval of the transfer of Pitkin Petroleum s 70% participating interest to MPOGI and the latter s operatorship of the block. SERVICE CONTRACT NO. 53 Onshore Mindoro The Sulu Sea area was first offered for bidding under the 4th Philippine Energy Contracting Round (PECR4) in 2012 in which Philodrill and PXP Energy Corporation (formerly Philex Petroleum Corporation) submitted a joint bid. The DOE did not award any new contract despite several submitted bids for the Sulu Sea area at that time, with the Philodrill/PXP Energy bid reportedly chosen based SERVICE CONTRACT NO. 41 Sulu Sea During the partners meeting in April, MPOGI reported that due to the lack of manpower and technical expertise to prosecute the work commitments for the joint venture, it offered to divest as much as 70% of its interest in exchange for reimbursement of past costs amounting to US$ 500,000 and the option to match future gas sales/offtake agreement. MPOGI also offered to transfer operatorship of the block to the partners. Philodrill will most likely participate and bid should the Sulu Sea area be offered in future bidding rounds. on the proposed work programs. The Sulu Sea area was not included among the different blocks offered for bidding under the PECR5 in May Philodrill finally received the Department of Energy s approval for the inclusion of the Cadlao Oilfield into the SC on March 14, The SC 6B Joint Venture is looking at redeveloping the field together with the East Cadlao and the potential tie-back to the Matinloc platform in SC 14B. 15